Judgement and Decision making

• Rational decision


  Controlled, effortful, logically coherent, and rule-based decision making
• The process of rational decision making

  Define the problem -> identify criteria to judge -> weight the criteria -> generate alternatives -> rate each alternative ->compute optimal decision
• Bounded rationality


  People try to make rational decisions but CAN’T due to cognitive limitations
• Bias


  Systematic deviation from objective truths or fairness, affecting how people make decisions
• Heuristic 


  Rule of thumb, allows people to cope with complex environment surrounding our decisions
• Heuristics result in


  Predictable biased
• Representativeness heuristic 


  Faulty strategy based on the presumption that once people/events are CATEGORISED, they SHARE ALL FEATURES of other members in this category
• System 1


  perception/intuition

  automatic, effortless, fast, largely unconscious, does most of our thinking -> autopilot
• System 2


  Controlled, effortful, slow, conscious, lazy, hard to get engaged
• Availability bias 


  Occurs when people make judgments and decisions based on the EASE with which examples or instances come to mind

  ex: 9/11 - use a car
• Anchoring bias 


  Biasing an estimate on a complete irrelevant quantity
• Anchoring bias example


  Initial offers have a stronger influence on the outcome of negotiations than subsequent counteroffers
• Dan Ariely


  Adopt the perspective of an outsider

  Related to anchoring - social security number
• Confirmation bias 


  Seek info in a way that confirms their preexisting beliefs or hypotheses, ignoring info that contradicts their beliefs
• Overconfidence effect 


  Confidence in your judgement is bigger that the objective accuracy
• Framing effects 


  the way in which info is presented can influence judgement
• Loss frame


  People are risk-averse: risk more to avoid loss
• Gain frame


  Risk less
• Nudging


  Подталкивание: pee where the bee is

  decision-making without restricting their freedom of choice
• Opting in


  If you WANT to …
• Opting-out


  If you DO NOT want